Which Segments Stop AMD’s Growth?
What Should Investors Look for in AMD's Fiscal 4Q15 Earnings?
AMD’s growth stoppers
In the last part of this series, we saw that the gaming market and GPUs (graphic processing units) are the key areas that are driving growth for Advanced Micro Devices (AMD). It’s also important to know areas that are stalling its growth.
For AMD, it’s struggling to grow in the CPU (central processing unit) market. The PC processor market is dominated by Intel (INTC). It has more than 80% of the market share. Intel has better financial and marketing resources. It also has foundries and economies of scale that give it a strong edge over AMD.
Another area is the server market. Intel dominates the market with more than 99% market share. However, AMD aims to gain share in the mainstream server market with the roll out of Zen architecture in 4Q16. The company has a 53% share in the thin client market. However, the IDC expects thin and terminal client shipments to fall by 6% YoY (year-over-year) to 5.1 million units in 2015. It expects the shipments to grow by 6.4% YoY in 2016. A higher market share wouldn’t churn out strong revenue in the thin client market.
While not much change is expected on the revenue front, there will likely be a significant change on the cost and cash reserve front as the company’s restructuring plan starts showcasing the results.
Key happenings in fiscal 4Q15
AMD is coming closer to a fabless model similar to its competitors NVIDIA (NVDA) and Qualcomm (QCOM). In October 2015, the company signed a joint venture with Nantong Fujitsu Microelectronics that will infuse $320 million in cash into the company in fiscal 1H16. It will reduce the annual capital expenditure by $60 million.
AMD’s mid and long-term goals
AMD aims to revive its growth in the computing and graphics segment by increasing Carrizo unit shipments. It plans to benefit from the steady consumer and enterprise PC refresh cycle.
The company aims to continue to develop strong new products in its target market and gain market share.
It looks to strengthen its balance sheet through restructuring and strategic decisions like the Nantong joint venture.
The company aims to use its rich portfolio of foundational patents in licensing. This will generate a steady source of revenue just like Qualcomm.
The PowerShares QQQ ETF (QQQ) has more than 8.00% exposure in the semiconductor market. It has a 3.2% holding in Intel (INTC), 0.34% in NVIDIA, and 1.5% in Qualcomm.
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